<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
January 22, 1998
Dear Shareholder:
We are pleased to present to you the Quarterly Report of The United Kingdom
Fund Inc. (the "Fund"). On December 31, 1997, the end of the period under
review, the Fund's net assets totaled $62.7 million. This represents a net asset
value per share of $15.62, a rise of 191.98% from its initial value after taking
into account underwriting discounts, commissions, offering expenses and
distributions. This compares with an increase of 203.65% in the FTSE All-Share
Index (U.S.$) over the same time period. At the end of the period under review,
the Fund was quoted at $14.125 per share on the New York Stock Exchange, which
represents a 9.57% discount to the Fund's net asset value per share.
On December 22, 1997, Mercury Asset Management International Ltd. and Mercury
Asset Management International Channel Islands Ltd. (collectively known as
"MAM") became indirect subsidiaries of Merrill Lynch & Co., Inc. This
transaction created one of the largest asset management groups in the world with
combined assets under management of approximately $450 billion and it
substantially increased the breadth and depth of MAM's resources and expertise.
This permits MAM to better serve you, the Fund's shareholders, and other
clients.
We also enclose an investment review and United Kingdom market outlook
together with a summary of the major portfolio investments.
Yours sincerely,
[SIGNATURE] [SIGNATURE]
Anthony M. Solomon J. Loughlin Callahan
Chairman of the Board President
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INVESTMENT MANAGER
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
During the fourth quarter of 1997, your Fund experienced a rise in net asset
value of 2.45%, which compared with a 0.31% increase in the FTSE All-Share
Index. For 1997 calendar year to date, the Fund's net asset value has increased
by 11.29%, which compares with an 18.34% increase in the FTSE All-Share Index.
These results are recorded in total return and U.S. dollar based terms.
The U.K. equity market gave back some of the previous quarter's gains in the
final quarter of 1997. The main influences on the market were the market
turbulence in the Far East and falling commodity prices, as global growth
forecasts were restrained. The gilt market again provided an encouraging
background with yields at the long end continuing their decline. The
Chancellor's Budget, which included the future abolition of the advanced
corporation tax, had little impact on the market and the quarter point rise in
bank base rates to 7.25% merely confirmed the commitment of the Bank of England
to keeping inflation under control.
The severe weakness seen in the Japanese and other Far Eastern markets
encouraged investors to look for domestic oriented stocks with secure earnings
prospects. Although cyclical and smaller company stocks performed well in
October, this was short-lived, and overseas investors in particular were keen
buyers of the larger domestic stocks in the final months of the year.
The best performing sectors over the quarter were telecommunications,
financials, insurance and brewers. British Telecom finally resolved its attempt
to merge with MCI Communications Corp. (MCI), receiving a cash offer from
WorldCom, Inc. for its MCI holding. The financials sector saw the Merrill Lynch
& Co., Inc. offer for Mercury Asset Management Group which prompted speculative
buying of other investment management companies. The insurance sector had a
combination of domestic earnings, high exposure to fixed interest markets and
the ongoing consolidation of the industry, particularly in Europe. Within an
already popular brewing sector, Bass sprang to prominence with a number of
corporate moves, including the intended return of cash to shareholders.
The weakest sector again was extractive industries, where falling base metal
prices and the continued sale of gold by central banks plagued sentiment. The
oil price came under pressure as well as forecasts for world economic growth
were scaled back. BTR was a dire performer following its trading statement which
contributed to the diversified industrials sector, of which it is a part,
becoming the second worst performing sector. The Far Eastern banks, HSBC
Holdings and Standard Chartered, predictably suffered from the turmoil in the
Asian securities markets.
The Fund's and the FTSE All-Share Index's sector weightings expressed as a
percentage of total equities held at December 31, 1997 are outlined below:
<TABLE>
<CAPTION>
% OF FTSE
% U.K. ALL-SHARE
FUND INDEX
----------- -------------
<S> <C> <C>
Mineral Extraction............................... 5.8 9.4
General Industrials.............................. 21.3 12.3
Consumer Goods................................... 29.0 17.8
Services......................................... 9.6 22.0
Utilities........................................ 17.6 10.9
Finance.......................................... 16.7 24.7
Investment Trusts................................ 0.0 2.9
</TABLE>
2
<PAGE>
ECONOMIC & MARKET OUTLOOK
Faced with the declining performance of Asian markets and the possible
consequences for global economic growth, investors have been opting for safety.
It has therefore not been surprising that solid U.K. domestic sectors have been
in demand as investors seek the safe haven of companies in sectors such as
insurance, brewers and utilities where future prospects are reassuringly
predictable and immune to currency and international influences. Other domestic
sectors have not been quite so inviting as the building society windfall effect
has continued to wane and year-end trading for the retailers generally fell
below expectations. Nevertheless, early indications suggest that January, helped
by unusually mild weather, has started strongly with consumers taking advantage
of the pre-holiday overstocking. The volatility of consumer demand, together
with the continued struggle by exporters to maintain order books with sterling
at current levels, makes the Bank of England's job in determining the level of
interest rates even harder.
The U.K. economy is likely to see a significant reduction in economic growth
in 1998 as the problems in the Far East lead to lower U.K. exports to the region
and increased trading pressures from Asian producers with ultra-competitive
currencies. Interest rates are unlikely to be edged up much further against this
background and concerns over inflationary pressures will most likely be confined
to the buoyant service sectors concentrated in the south-east of England.
Corporate earnings will be vulnerable to downgrades as the overall trading
environment becomes more difficult.
A key influence on the U.K. market will be the huge inflow of funds as a
result of several large cash takeovers, including the increasing number of cash
returns to shareholders from companies such as Diageo Capital, Elementis, Bass,
Dalgety and United Biscuits (Holdings). Also prominent are the ongoing share
buy-back operations by some companies. Global deflationary pressures are likely
to discourage companies from expanding internationally and a substantial flood
of money returning to shareholders could easily prove difficult to reinvest,
given the dearth of new equity.
Equity investors will be faced with the choice of sticking with the safe
domestic stocks or switching into cyclical manufacturers where prospects could
improve rapidly if sterling were to weaken. Many smaller companies now offer
excellent value and it is possible that we would see more takeover bids,
especially from U.S. companies taking advantage of the low valuations. All the
indications are that market volatility is here to stay with the new SETS
order-driven system quickly reflecting the changing swings in investor
sentiment.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The most prominent feature of the period for the Fund was the recommended
offer for Manders from Flint Ink Corporation. The offer was at a significant
premium to the prevailing market price and enabled the Fund to sell its holdings
at a substantial profit. Elsewhere we completed the sale of Whitecroft and made
reductions in the holdings of Greggs, Anglian Water, LucasVarity, CML
Microsystems and Wolstenholme Rink.
We added selectively to several of the smaller company holdings where we
believed there was the prospect of significant profit growth.
The Fund's ten largest equity holdings as of December 31, 1997 were:
BARCLAYS
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 1618p
Prospective Earnings per share (to December 1998)........... 126.0p
Prospective Earnings Multiple............................... 12.8x
</TABLE>
Barclays has shown a strong recovery in banking profits following a reduction
in bad debts and success in controlling costs through branch closures and
centralization of service functions. We believe that substantial further cost
savings can be achieved through the introduction of new technology and staff
reductions. Barclays has recently finalized the sale of BZW, its securities arm,
which should release significant capital on which a higher return can be
achieved. Barclays has bought back its own shares on a regular basis and we
expect a continued focus on improving shareholder value.
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 1440p
Prospective Earnings per share (to December 1998)........... 56.1p
Prospective Earnings Multiple............................... 25.7x
</TABLE>
Glaxo Wellcome is a leading international pharmaceuticals company which has
recently announced its intention to merge with SmithKline Beecham. This would
create the largest pharmaceuticals company in the world with the potential for
significant synergy benefits. The combined company's drug portfolios would have
significant drugs in almost all therapeutic categories but with particular
strength in anti-virals and anti-emetics.
NATIONAL WESTMINSTER BANK
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 1012p
Prospective Earnings per share (to December 1998)........... 77.4p
Prospective Earnings Multiple............................... 13.1x
</TABLE>
National Westminster Bank is a leading retail bank in the U.K. Like other
clearing banks it is undergoing a strategy of branch closures and reductions in
its workforce. It has rapidly expanded its investment management and corporate
advisory capabilities. The U.K. securities operation has recently been sold to
Bankers Trust which should release capital on which a higher return can be
achieved. Profits are expected to continue their steady growth helped by low bad
debts and increasing fee income. National Westminster Bank is likely to be a
participant in any consolidation of the U.K. banking sector.
4
<PAGE>
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 440p
Prospective Earnings per share (to December 1998)........... 22.3p
Prospective Earnings Multiple............................... 19.7x
</TABLE>
Shell Transport & Trading is a leading oil company with substantial
production, refining and petrochemical activities. Profits from oil exploration
and production are expected to grow, despite the recent setback in the price of
crude oil. Cash flow remains highly positive, despite a substantial increase in
exploration expenditure and we continue to expect strong dividend progression
for at least the next two years.
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 800p
Prospective Earnings per share (to December 1998)........... 53.3p
Prospective Earnings Multiple............................... 15.0x
</TABLE>
British Petroleum ("BP") is a leading international oil company with a
substantial exploration and production profile. BP continues to develop its oil
production interests in the Gulf of Mexico, Colombia and the region West of
Shetlands. It is planning to cut its refining capacity to match production with
customer demand and has reduced the cyclicality of its chemicals operations.
Strong cash flow from the company should see a sharp reduction in the level of
borrowings and we expect excellent dividend progression.
ALLIED DOMECQ
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 524p
Prospective Earnings per share (to August 1998)............. 39.5p
Prospective Earnings Multiple............................... 13.3x
</TABLE>
Allied Domecq is an international spirits company with several leading brands
including Ballantine's and Canadian Club whiskies, Beefeater gin, Tia Maria and
Kahlua. It also is a liquor retailer through public houses and off-licenses and
owns the worldwide franchises to Dunkin' Donuts and Baskin-Robbins ice cream
parlors. We expect earnings to make steady progress as the management maximizes
the profitability of its brand portfolio.
BARR (AG)
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 417p
Prospective Earnings per share (to January 1999)............ 35.6p
Prospective Earnings Multiple............................... 11.7x
</TABLE>
Barr (AG) is a manufacturer of branded soft drinks based in Scotland. It has
recently completed new manufacturing facilities in Cumbernauld, which should
produce significant production efficiencies to enhance its competitive position.
The recent profit announcement has confirmed that profitability has
substantially improved.
FINLAY (JAMES)
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 110p
Prospective Earnings per share (to December 1998)........... 11.1p
Prospective Earnings Multiple............................... 9.9x
</TABLE>
Finlay (James) is a major tea producer, owning tea estates in Kenya and
Bangladesh. It also has a stake in a Ugandan tea estate and manages a group of
estates on behalf of the Sri Lankan government. Finlay (James) also produces
special teas, including instant tea and packaged tea on an exclusive basis for
J. Sainsbury plc, one of Britain's major supermarket chains. Finlay (James)
continues to refocus, following its previous diversification strategy and is
expected to show strong profit growth over the next few years.
5
<PAGE>
JOHNSTON GROUP
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 352p
Prospective Earnings per share (to December 1998)........... 33.5p
Prospective Earnings Multiple............................... 10.5x
</TABLE>
Johnston Group is a diversified industrial group involved in road surfacing,
quarrying, the manufacture of concrete pipes, road sweepers, fire fighting
equipment and washroom equipment. The roadsweeper business has grown strongly
and the concrete pipes division has also performed well, due to substantial
ordering by water companies who are spending heavily to meet tighter
environmental standards. TT Group, an acquisitive holding company, retains a
stake in Johnston Group and may look to increase its investment further.
ABBEY NATIONAL
<TABLE>
<S> <C>
Market Price as of 12/31/97................................. 1091p
Prospective Earnings per share (to December 1998)........... 71.8p
Prospective Earnings Multiple............................... 15.2x
</TABLE>
Abbey National is one of the leading mortgage lenders in the U.K. It has
recently appointed the successor to the current chief executive and is
anticipated to recommence its acquisition program in financial services.
Although it owns Scottish Mutual Life, it is still underrepresented in the life
insurance market and may seek further purchases in this area. Profit growth
seems set to continue at a rapid rate, helped by cost reductions and a more
active residential property market.
6
<PAGE>
- ----------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN UNITED KINGDOM SECURITIES--
98.0% OF NET ASSETS
COMMON STOCKS--98.0%
ALCOHOLIC BEVERAGES--3.8%
250,000 Allied Domecq plc Ord 25p......................... $ 2,155,487
270,000 Merrydown plc Ord 25p............................. 233,237
-----------
2,388,724
-----------
BANKING--16.4%
95,000 Abbey National plc Ord 10p........................ 1,705,385
150,000 Barclays plc Ord 100p............................. 3,993,410
200,000 National Westminster Bank plc Ord 100p............ 3,330,310
100,000 Royal Bank of Scotland Group plc Ord 25p.......... 1,271,902
-----------
10,301,007
-----------
BUILDING MATERIALS & MERCHANTS--6.8%
476,000 Cape plc Ord 25p.................................. 841,956
300,000 Johnston Group plc Ord 10p........................ 1,740,021
550,000 Norcros plc Ord 25p............................... 624,433
530,000 Universal Ceramic Materials plc Ord 5p............ 675,852
344,370 Vibroplant plc Ord 5p............................. 362,644
-----------
4,244,906
-----------
CHEMICALS--2.5%
35,000 Wolstenholme Rink plc Ord 25p..................... 394,487
325,000 Yorkshire Group plc Ord 25p....................... 1,163,099
-----------
1,557,586
-----------
DIVERSIFIED INDUSTRIALS--2.1%
200,000 Wardle Storeys plc Ord 10p........................ 1,373,917
-----------
ELECTRICITY--2.3%
300,000 National Grid Group plc Ord 10p................... 1,426,570
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT--4.8%
270,000 Alphameric plc Ord 2.5p*.......................... 224,351
315,000 Beales Hunter plc Ord 20p......................... 287,660
350,000 CML Microsystems plc Ord 5p....................... 878,238
250,000 General Electric Co. plc Ord 5p................... 1,622,785
-----------
3,013,034
-----------
ENGINEERING--GENERAL--2.9%
331,186 Ash & Lacy plc Ord 5p............................. 907,320
2,000,000 Beauford plc Ord 10p.............................. 888,521
-----------
1,795,841
-----------
ENGINEERING--VEHICLES--1.8%
315,500 LucasVarity plc Ord 25p........................... 1,116,123
-----------
FOOD PRODUCERS--7.4%
270,000 Barr (AG) plc Ord 25p............................. 1,854,788
200,000 CPL Aromas plc Ord 10p............................ 319,210
1,000,000 Finlay (James) plc Ord 25p........................ 1,818,178
450,000 Paramount Foods plc Ord 10p....................... 666,391
-----------
4,658,567
-----------
HEALTH CARE--2.7%
400,000 Scholl plc Ord 5p................................. 1,704,645
-----------
HOUSEHOLD GOODS--1.0%
182,500 Royal Doulton plc Ord 100p........................ 641,113
-----------
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
LEISURE & HOTELS--1.7%
350,000 MacDonald Hotels plc Ord 5p....................... $ 1,051,006
-----------
OIL & GAS--11.7%
176,470 BG plc Ord 25p.................................... 795,602
225,000 British Petroleum plc Ord 25p..................... 2,961,738
200,000 Centrica plc Ord 5p*.............................. 294,528
450,000 Shell Transport & Trading plc Ord 25p (Regd.)..... 3,257,912
-----------
7,309,780
-----------
PHARMACEUTICALS--7.9%
150,000 Glaxo Wellcome plc Ord 25p........................ 3,554,086
40,000 Zeneca Group plc Ord 25p.......................... 1,406,496
-----------
4,960,582
-----------
RETAILERS-FOOD--1.8%
35,000 Greggs plc Ord 20p................................ 1,157,546
-----------
RETAILERS-GENERAL--3.7%
106,250 Courts plc Ord 25p................................ 751,746
250,000 John Menzies plc Ord 25p.......................... 1,536,402
-----------
2,288,148
-----------
TEXTILES & APPAREL--3.0%
350,000 French plc Ord 10p................................ 230,358
165,000 Shiloh plc Ord 25p................................ 264,705
1,550,000 Sirdar plc Ord 25p................................ 1,364,456
-----------
1,859,519
-----------
TELECOMMUNICATIONS--1.3%
100,000 British Telecommunications plc Ord 25p............ 787,329
-----------
TOBACCO--2.5%
175,000 BAT Industries plc Ord 25p........................ 1,595,225
-----------
TRANSPORT--2.2%
150,000 British Airways plc Ord 25p....................... 1,382,144
-----------
WATER--7.7%
120,000 Anglian Water plc Ord 100p........................ 1,599,339
100,000 South West Water plc Ord 100p..................... 1,526,118
200,000 Wessex Water plc Ord 60p.......................... 1,683,254
-----------
4,808,711
-----------
Total Common Stocks
(cost $45,492,501).............................. 61,422,023
-----------
UNITED STATES SHORT-TERM INVESTMENT--
3.2% OF NET ASSETS
1,975,734 Federated Investors, Trust for Short-Term U.S.
Government Securities+--(cost $1,975,734)....... 1,975,734
-----------
Total Investments (cost $47,468,235)--101.2%...... 63,397,757
-----------
Liabilities in excess of cash and other
assets--(1.2%).................................. (735,435)
-----------
NET ASSETS--100.0%................................ $62,662,322
-----------
-----------
NUMBER OF SHARES ISSUED AND OUTSTANDING........... 4,011,655
-----------
-----------
NET ASSET VALUE PER SHARE......................... $15.62
-----------
-----------
</TABLE>
- ------------------
* Non-income producing securities.
+ Money market fund.
7
<PAGE>
-----------------------------------------------
THE UNITED KINGDOM FUND INC.
AMENDED DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
TERMS AND CONDITIONS
-----------------------------------------------
1. Each shareholder of The United Kingdom Fund Inc. (the "Fund") will have all
distributions automatically reinvested by The Bank of New York (the "Plan
Agent"), in Fund shares pursuant to the Fund's Amended Dividend Reinvestment and
Cash Purchase Plan. Shareholders who do not wish to participate in the Plan may
elect to receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by the Plan Agent, as dividend paying agent.
2. The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare a dividend, participants in the Plan
will receive the equivalent in stock in the Fund valued at the lower of market
price or net asset value, in either case as determined on the record date for
that dividend. Whenever the market price is equal to or exceeds net asset value
at the time shares are valued for the purpose of determining the number of
shares equivalent to the cash dividend or distribution, participants will be
issued shares of the Fund at a price equal to the greater of net asset value or
an amount equal to 95% of the then current market price of the Fund's shares.
The Fund will not issue shares under the Plan below net asset value. If net
asset value exceeds the market price of Fund shares at such time, or if the Fund
should declare a dividend or other distribution payable only in cash (i.e., if
the Board of Directors should preclude reinvestment at net asset value), the
Plan Agent will, as agent for the participants, buy Fund shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of a Fund share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of the
Fund's shares, resulting in the acquisition of fewer shares than if the dividend
or distribution had been paid in shares issued by the Fund.
3. Participants have the option of making additional cash payments to the Plan
Agent, quarterly, in any amount from U.S. $100 to U.S. $3,000, for investment in
the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about March 15,
June 15, September 15 and December 15 of each year. Any voluntary cash payments
received more than 30 days prior to these dates will be returned by the Plan
Agent, and interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, participants should send in voluntary cash
payments to be received by the Plan Agent approximately ten days before March
15, June 15, September 15 or December 15, as the case may be. Optional cash
payments must be made in U.S. dollars. Optional cash payments drawn on a
non-U.S. bank will be subject to collection fees and must be collected by the
foregoing quarterly dates to be invested. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Plan Agent not
less than 48 hours before the payment is to be invested.
4. The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
5. In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan. Shareholders whose shares are held in the name of a broker or nominee
should consult with the broker or nominee to determine whether they should
participate in the Plan or how they may withdraw from the Plan.
6. There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no brokerage
charges with respect to shares issued directly by the Fund as a result of
dividends or capital gains distributions payable either in stock or cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions. The Plan
Agent may use its wholly-owned subsidiary, BNY Brokerage Inc., for trading
activity relating to the Plan, on behalf of Plan participants.
7. With respect to purchases for voluntary cash payments, the Plan Agent will
charge U.S. $2.00 for each purchase for a participant, plus a pro rata share of
the brokerage commission. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be
8
<PAGE>
less than the usual brokerage charges for these transactions because the Plan
Agent will be purchasing stock for all participants in blocks and prorating the
lower commission thus attainable.
8. The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. income tax that may be payable on such dividends or
distributions.
9. Participants in the Plan may effect "book-to-book" transfers, which involve
transferring shares from an existing participant account in the Plan to a new
participant account, by contacting the Plan Agent.
10. Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the change sent to the members of the Plan at least
90 days before the record date for such dividend or distribution. The Plan also
may be amended or terminated by the Plan Agent by at least 90 days' written
notice to members of the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent, the Bank of New York, at P.O. Box 11002, Church
Street Station, New York, New York, 10249.
9
<PAGE>
- ------------------------------------------------------------------
DIRECTORS AND OFFICERS
ANTHONY M. SOLOMON, Chairman of the Board and Director
GEORGE F. BENNETT, Director
LIVIO BORGHESE, Director
* SIR ARTHUR BRYAN, Director
PETER STORMONTH DARLING, Director
LEON LEVY, Director
* J. MURRAY LOGAN, Director
* JAMES S. MARTIN, Director
J. LOUGHLIN CALLAHAN, President and Treasurer
STEVEN W. GOLANN, Vice President, Assistant Treasurer
RITA J. KLEINMAN, Secretary
THADDEA M. FELDMAN, Assistant Secretary
AMANDA J. MARSH, Assistant Secretary
* Member of the Audit Committee
- ----------------------------------------------------
EXECUTIVE OFFICES--
245 Park Avenue
15th Floor
New York, New York 10167
(For latest net asset value, market data, shareholder inquiries and requests for
Fund reports, please call (212) 272-2323.)
INVESTMENT MANAGER--
Mercury Asset Management International
Channel Islands Ltd.
Forum House, Grenville Street
St Helier, Jersey JE4 8RL
Channel Islands
INVESTMENT ADVISER--
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England
ADMINISTRATOR--
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
CUSTODIAN--
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
TRANSFER AGENT AND REGISTRAR--
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, New York 10286
LEGAL COUNSEL--
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
INDEPENDENT AUDITORS--
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
ADDITIONAL INFORMATION
This report, including the Statement of Investments contained herein, is
transmitted to the shareholders of The United Kingdom Fund Inc. for their
information. The Statement of Investments included herein are taken from the
records of the Fund without audit by the Fund's independent auditors who do
not express an opinion thereon. This is not a prospectus, circular or
representation intended for use in the purchase of shares of the Fund or any
securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Comparisons between changes in the Fund's net asset value per share and
changes in the FTSE All-Share Index should be considered in light of the
Fund's investment policy and objectives, the characteristics and quality of
the Fund's investments, the size of the Fund and variations in the U.S.
dollar/pound sterling exchange rate.
<PAGE>
-------------------------------------------
SUMMARY OF GENERAL INFORMATION
---------------------------------------
THE FUND
The United Kingdom Fund Inc. is a diversified, closed-end management
investment company whose shares trade on the New York Stock Exchange. Its
investment objective is long-term capital appreciation through investments
primarily in United Kingdom equities. The Fund is managed by Mercury Asset
Management International Channel Islands Ltd., relying on investment advice from
Mercury Asset Management International Ltd. (Regulated by IMRO).
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designation "Utd
KingFd" or "UKing". The Fund's New York Stock Exchange trading symbol is UKM.
Weekly comparative net asset value (NAV) and market price information about the
Fund shares are published each Monday in THE WALL STREET JOURNAL, THE NEW YORK
TIMES, and BARRON'S as well as other newspapers in a table called "Closed End
Funds," and are also available on REUTERS under the designation "MAMINDEX".
Shareholders interested in receiving the quarterly newsletter entitled "Closed
End Fund Focus" should call 1-212-888-6941 and request to be placed on the
mailing list or send a request by mail to the Fund's address.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN--SUMMARY
An automatic Dividend Reinvestment and Cash Purchase Plan is available to
provide shareholders with automatic reinvestment of their dividend income and
capital gains distributions in additional shares of the Fund's common stock and
the opportunity to purchase additional shares of the Fund on a quarterly basis.
Information describing the Plan is available from the Plan Agent, The Bank of
New York, by calling: 1-800-477-2327.
All shareholders are automatically enrolled in the Dividend Reinvestment Plan
unless they have elected to receive distributions in cash. Therefore, if you
wish to participate and your shares are held in your own name, no action is
required on your part. If you have previously elected to receive distributions
in cash and now wish to participate in the Plan, please call the Plan Agent at
the number above. If your shares are held in the name of a brokerage firm, bank
or other nominee, you should instruct your nominee to participate in the Plan on
your behalf. If your nominee is unable to participate on your behalf, you should
request it to register your shares in your own name which will enable you to
participate in the Plan.
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THE UNITED KINGDOM FUND INC.
QUARTERLY REPORT
DECEMBER 31, 1997
